AMP Financial Services says changes to the taxation of life insurance will cut profit by $20m annually from 2015

Insurer and fund manager AMP Financial Services New Zealand says changes to the way life insurance is taxed will cut its underlying operating profits by about $20 million annually from July next year, despite insurance premium increases being "passed on" to customers.

These comments come in AMP's annual results announcement in which it reports underlying operating profit after tax of $132 million for the 2013 calendar year, up $13 million, or 11% on 2012.

Managing director Jack Regan says AMP's net life insurance experience operations recorded an annual loss of $1 million, an improvement on the $10 million 2012 loss. Regan said the improvement stemmed from better lump sum and income protection underwriting profits, which was helped by effective claims management.

Total insurance premiums rose $3 million to $340 million, with Regan saying subdued new business sales and lower customer retention as a consequence of price increases had an impact.

"AMP, like other life insurers is passing on premium increases in response to the changes to life taxes in New Zealand," says Regan. “Customer retention remains a strong focus in a competitive environment."

"The changes to the taxation of life insurance will reduce underlying operating profits by approximately $20 million per annum from 1 July 2015. In response, we’ve made enhancements to our product offerings, which has helped position them more favourably in the marketplace,” Regan says.

"The full impact of these changes will broadly come into effect on 1 July 2015. AMP is responding positively to the change, by progressively growing its revenue base, reducing overall costs and mitigating the capital impacts of distributing life insurance."

IRD says the changes are aimed at avoiding over-taxation of people using life insurance as a form of savings, and ensure insurance companies are taxed on their actual profits. See more details here and here.

AMP says its wealth management operations grew assets under management by $700 million, or 9%, to $7.8 billion. The firm says as of the end of 2013, it had close to 259,000 KiwiSaver customers and almost $2.9 billion of assets under management, which was an annual increase of 19%.

Regan says the rise in underlying operating profit, which includes investment earnings on shareholders’ funds, was helped by improved operating performance, although this was partly offset by a reduction in expected investment returns due to lower interest rates.

Operating earnings rose $22 million, or 24%, to $115 million.

"The improvement is the result of higher revenues from growth in assets under management, a recovery in general insurance distribution margins, disciplined cost control measures and a significant improvement in claims experience in the life insurance business," Regan says.

“Controllable costs, on a like for like basis, dropped from $111 million at 31 December 2012 to $102 million by 31 December 2013,” says Regan.

“We have also benefited from the completion of our integration programme of work which has delivered savings on office accommodation, synergies from a single organisational design and savings from product and system efficiencies. We will continue to invest in IT systems and enhanced processes to achieve greater efficiencies and improved customer, Adviser and employee experiences.”